Dear David Axelrod - I Checked Your Facts on Small Business and You're Wrong Again

So I've been spending some time reading the Health Reform Bill currently getting trashed in congress via Open Congress and I'm fired up again due to the marketing by the Obama Administration. The latest is the propaganda they are spreading on making insurance affordable for small business. When I read the bill, I see the ability to take advantage of credits, but it is NOT absolute as Axelrod and the rest of the administration would have you believe. Here's an excerpt from the now infamous SPAM mailing by the Obama Administration with David Axelrod's signature on it...

"Reform will benefit small business - not burden it: It’s a myth that health insurance reform will hurt small businesses. To the contrary, reform will ease the burdens on small businesses,provide tax credits to help them pay for employee coverage and help level the playing field with big firms who pay much less to cover their employees on average."

The plans have a tax credit for small businesses to help them provide health insurance for their workers, to reward them for doing the right thing by their employees.

So logically the small business owner would think that they are definitely going to get a credit as a reward for doing the right thing. Right? No reasons NOT to support this right? Well as usual the Obama administration plays around with words and sells way too much with something as sensitive as health care. Here's what the bill actually says regarding the small business credit..

SEC. 45R. SMALL BUSINESS
EMPLOYEE HEALTH COVERAGE CREDIT

‘(a) In General- For purposes of section 38, in the case of a
qualified small employer, the small business employee health coverage credit
determined under this section for the taxable year is an amount equal to the
applicable percentage of the qualified employee health coverage expenses of
such employer for such taxable year. ‘(b) Applicable Percentage-‘(1) IN GENERAL- For purposes of this section, the applicable
percentage is 50 percent. ‘(2) PHASEOUT BASED ON AVERAGE COMPENSATION OF EMPLOYEES- In the
case of an employer whose average annual employee compensation for the taxable
year exceeds $20,000, the percentage specified in paragraph (1) shall be
reduced by a number of percentage points which bears the same ratio to 50 as
such excess bears to $20,000.‘(c) Limitations-‘(1) PHASEOUT BASED ON EMPLOYER
SIZE- In the case of an employer who employs more than 10 qualified employees
during the taxable year, the credit determined under subsection (a) shall be
reduced by an amount which bears the same ratio to the amount of such credit
(determined without regard to this paragraph and after the application of the
other provisions of this section) as--(A) the excess of--‘(i) the number of qualified employees
employed by the employer during the taxable year, over (ii) 10, bears to‘(B) 15.‘(2) CREDIT NOT ALLOWED WITH RESPECT
TO CERTAIN HIGHLY COMPENSATED EMPLOYEES- No credit shall be allowed under
subsection (a) with respect to qualified employee health coverage expenses paid
or incurred with respect to any employee for any taxable year if the aggregate
compensation paid by the employer to such employee during such taxable year
exceeds $80,000.

Ok, now I can't quite figure out all of this jargon but here's what I do understand and why the Obama Administration is WRONG for promoting this in absolute terms because there are quite a number caveats on the credit:

You receive NO CREDIT for an employee that makes more than $80K per year. That's not so good in a bunch of states like say New Jersey. This exception also means that the owners of these businesses are also counted as employees, so probably you are NOT going to SEE ANY CREDIT for your own health insurance.

The credit gets phased out by some percentage if your TOTAL company payroll is greater than $20K which means the only way to get the full 50% credit is if your entire payroll is less than $20K. Wow that's generous.

Finally the credit is also reduced by some percentage if you employ more than 10 but less than 15 employees.

Seriously people does this sound like the Obama Administration should be marketing the small business health credit in the manner in which it does? Right off the bat all of your HIGHLY PAID EMPLOYEES INCLUDING THE OWNERS WHO MAKE $80K OR MORE ARE EXCLUDED. Then if you have other employees, you've probably already busted the $20K payroll threshold so any credit you make on anyone making less than $80K will be reduced.

I think the Obama Administration should be ashamed of themselves for marketing the small business credit in this manner. It is definitely not an ABSOLUTE credit and probably at the end of the day small businesses will be better off paying the fine and pushing employees to the public option rather than providing the benefits with these potential credits.

Am I wrong? Let me know.

Eric

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